EVCA Handbook Professional Standards for the Private Equity and ...

50 EVCA Handbook Professional Standards for the Private Equity and Venture Capital IndustryWWW.PRIVATEEQUITYEVALUATION.COMWWW.PRIVATEEQUITYEVALUATION.COMndorsement8Disclosure of Confidential InformationPrivate equity by its nature utilises confidential, non-public information. Yet Investors in PrivateEquity Funds need sufficient, timely, comparable and transparent information from their Managerswhich allows Investors to:• Exercise fiduciary duty in monitoring deployed investment capital• Report periodic (quarterly / yearly) performance to ultimate Investors, beneficiaries, boards, etc.,as applicable• Prepare financial statements consistent with applicable accounting standards.Investors may also use the supplemental information recommended in these Guidelines to assist in:• Making asset allocation decisions• Making manager selection decisions• Supporting Investor level incentive compensation decisions.Private Equity Funds are typically governed by a combination of legal, regulatory, and agreedcontractual terms. It is not the intention of these Guidelines to prescribe the exact format thatManagers should use in reporting to Investors. Managers should have the latitude to developreporting formats which correlate to the individual nature of their investments and their Investors.These Guidelines highlight the essential content that should be reported to Investors and additionalinformation which may be important to Investors.The requirements and implications of International Financial Reporting Standards and US GAAPhave been considered in the preparation of these Guidelines. These Guidelines do not intendto repeat GAAP FS financial accounting and reporting requirements, but to expand upon suchinformation in a more detailed and consistent manner to further enhance an Investor’s ability toevaluate and compare such data.Venture CapitalThese Guidelines cover a wide spectrum of Private Equity Funds. Some Managers report on alimited number of Investments while others report on hundreds of Investments. For example, theinformation needs of a venture capital Investor may differ from the information needs of a largebuyout Investor. Therefore, judgment must be applied in applying these Guidelines to different typesof Funds.International Private Equity and Venture Capital Investor Reporting Guidelines l Edition October 2012Investor Reportingvs. FinancialReportingThese guidelines have been developed by the IPEV Board with the valuable input and endorsementof the following associations:Normal contractual negotiations between GPs andLPs establish requirements for a Fund to provideGAAP Financial Statements and related audits.Local regulations and historical practice drive theAFIC - Association Française des Investisseurs format and content en of GAAP Capital* Financial Statementsprepared in accordance with applicable GenerallyAIFI - Italian Private Equity and Venture Capital AssociationAccepted Accounting Principles and / or statutoryAMEXCAP - Mexican Private Equity requirements. Association Regulatory bodies such as the U.S.AMIC - Moroccan Private Equity andUnionVentureand NationalCapitalGovernments,Associationhave issuedAPCRI - Portuguese Private Equity additional and Venture regulations, Capital such as the AssociationAlternativeInvestment Fund Managers Directive (AIFMD),APEA - Arab Private Equity Association which impact the application of GAAP and requirecertain disclosures.ASCRI - Spanish Private Equity and Venture Capital AssociationATIC - Tunisian Venture Capital AssociationInvestor reporting typically goes beyond GAAPfinancial and regulatory reporting and covers theAVCA - African Venture Capital Associationcumulative results for the Fund over its lifetime,AVCAL - Australian Private Equity andinsightsVentureinto the progressCapitaland currentAssociationprospectsof the Fund’s Portfolio Companies, and otherAVCO - Austrian Private Equity and information Venture often Capital unique to Organizationthe particular Fundand its investment process. The goal of theseBVA - Belgian Venturing AssociationGuidelines is to provide guidance on InvestorBVCA - British Venture Capital Association*reporting that is distinctive to private equity.BVK - German Private Equity and Venture Certain local Capital regulations Association might also require e.V.GPs to provide information to their InvestorsCVCA - Canada’s Venture Capital and Private Equity Associationbeyond GAAP financial reporting (e.g. theCVCA - China Venture Capital Association AIFMD in Europe). It is not the intention ofthese Guidelines to describe specific regulatoryCVCA - Czech Venture Capital and requirements Private and Equity these Guidelines Association should notDVCA - Danish Venture Capital Associationbe considered as a substitute for complying withregulatory requirements.EMPEA - Emerging Markets Private Equity AssociationEVCA - European Private Equity and Venture Capital Association*FVCA - Finnish Venture Capital AssociationGVCA - Gulf Venture Capital AssociationHKVCA - Hong Kong Venture Capital AssociationHVCA - Hungarian Venture Capital and Private Equity AssociationILPA - Institutional Limited Partners AssociationIVCA - Irish Venture Capital AssociationSecurities and Exchange Commission, the EuropeanGPs often provide integrated GAAP financialstatements and investment reporting in theirreporting packages provided to LPs. There are anumber of disclosure items that are distinctive toPrivate Equity Funds which may be included in thefinancial statement reporting for these Funds ratherthan in the Investor reporting. Both current periodinformation and inception to date cumulativesummaries are often incorporated into the GAAPfinancial statements and supplemental Investorreporting packages. However, Investor reportingmay need to expand upon information reported inthe financial statements as follows:• Realised gains and losses determine thereturns to the LPs and cash returns andmultiples based on realised transactions areoften an important measure of progress ofa Fund to date. In addition, Investors needinformation concerning unrealised gains andlosses to provide a measure of progress atgiven points in time.• “Capital at Risk” or other risk measures arebecoming increasingly common metrics usedby Investors.• Unfunded Commitments are importantfor LPs as they review their asset allocationsand manage their cash and short-terminvestments in relation to their unfundedcapital commitments.• Cumulative reporting for capital accountsand the components that make up thecapital account (including, but not limitedto, management fees, Contributed Capital,Distributions, Carried Interest, unrealisedgains and losses, ending balance) for both theInvestor and the Fund Manager show howthe performance of the Fund has been splitbetween the GP and the LP. Carried Interestis an important part of the economics of aPrivate Equity Fund.International Private Equity and Venture Capital Investor Reporting Guidelines l Edition October 20129